Is Cross Currency Trading Allowed in India?

A currency pair that does not involve the U.S. Dollar is called the Cross Currency Pair. The most popular cross currency pairs consist of the euro and the Japanese yen. 

Is Cross Currency Trading Allowed In India?

In the Indian foreign exchange market, traders are only allowed to trade derivatives of the currency pairs that involve Indian Rupees. However after 2015, the Reserve bank of India allowed its citizens to trade cross currency pairs. Listed below are the cross currency pairs that you can trade as currency trading derivatives, such as futures, options, and swaps.

  1. Euro in pairing with the U.S. Dollar – EUR/USD
  2. GBP in pairing with the U.S. Dollar – GBP/USD 
  3. U.S. Dollar in pairing with the Japanese Yen – USD/JPY

Please be informed that spot trading in any currency pair or cross currency pair is not allowed in India. It’s a non-bailable offense that can lead you to dire trouble, including court trials, financial implications, and imprisonment.  Read the following for more info:

Trading Cross Currency Pairs In India – A brief explanation

Earlier, traders who wish to trade cross currency pairs needed to sign up with an international or offshore broker. Also, due to the non-regulatory framework of the forex market, the investment of currency traders used to remain at stake. The trading fee was yet another issue to tackle for currency traders in India

In 2015, the National Stock Exchange (NSE) approved three cross currency pairs in addition to the existing four currency pairs to be traded as derivatives (futures and options) in the Indian financial markets. Traders can now access the currency derivatives on at least three exchanges countrywide, including NSE, BSE, and Indian INX. Let me explain how you can trade currency derivatives on the exchanges.  

According to a recent survey conducted by the BIS, nearly 88% of the International traders prefer trading pairs that involve USD. Also, a majority of traders choose EURUSD, GBPUSD, and USDJPY for currency trading. Therefore you can ascertain the intensity of trading volume of these cross currency pairs in the international FX market.

Cross Currency Pairs – Futures Contracts 

The National Stock Exchange (NSE) has allowed traders to trade both futures and options contracts in the aforementioned cross currency pairs in India. While novice traders might take some time being comfortable with currency options trading, futures contracts make their way well into the currency derivative market. Not to mention, the NSE has fixed the maximum lot size for all cross currency pairs as 1000. Also, the pip size for each cross currency pair is mentioned in the given below table;

Currency Pair Base Currency Quote Currency Lot SizePIP
EURUSDEURUSD1000 EUR0.0001
GBPUSDGBPUSD1000 GBP0.0001
USDJPYUSDJPY2000 USD0.01

Traders can trade 12 future contracts in a month. The future contracts expire two days before the end of each month. Please be informed that the profit or loss for cross currency derivatives (futures contracts) are shown in the quote currency instead of INR. The mechanism stays the same for other financial markets, including commodities, and equity markets in India.

Cross Currency Pairs – Options Contracts 

The quarterly options contracts of cross currency pairs remain valid for three months. On the other hand, monthly option contracts expire in one month. Traders can trade currency options according to the following specifications.  

  • Options Expiry – European
  • Premium – Quote Currency (USD for GBP/USD, EUR/USD, and JPY for USD/JPY)
  • Strikes available – There are 25 strikes available for currency option traders

Main Highlights of Cross Currency Trading In India

  1. The RBI permitted cross currency derivatives to be traded on NSE in 2015.
  2. The Lot size for cross currency pairs, including EUR/USD, GBP/USD, and USD/JPY is set as 1000. 
  3. The pairs are traded in quote currency but settlement takes place in Indian Rupees
  4. The RBI reference rates are applicable for daily and final settlement of currency derivative contracts.
  5. Near month contracts expire two days before the last trading day of the month.

Read also: SEBI Registered Brokers

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